Checking Gold Stocks Valuations

It’s no secret that gold mining stocks are historically cheap and have been for several years.

Traditional metrics like price to cash flow and price to book value showed that gold stocks in late 2015 were at arguably their cheapest points since the start of the bull market in the 1960s.

Other metrics showed gold stocks to be the cheapest since the Roosevelt administration.

It has been almost a year since we examined some of these charts and with the sector moving closer to another epic low, we wanted an update.

First, let’s look at the performance of gold stocks over various long-term periods. In the chart below we plot the monthly performance of the S&P TSX Gold Index over those periods.

Going back 60 years we find that gold stocks are (in the context of the past few years) at one of their most three depressed points. The other points were around 1960 and 2000.

Next, let’s see how gold stocks stack up against the stock market and Gold. We put both charts in the same image.

Prior to the current rally, the gold stocks relative to the stock market made new lows, which surpassed the 2015-2016 lows! The recent low marks at a minimum a 90-year low!

The gold stocks to Gold ratio is not quite as cheap. But when you look at the chart, you can see that ratio is not far from its own 90-year low.

These charts (and others) show an industry that is extremely and historically cheap. The setup for near term and long-term price appreciation is extremely bullish. Gold stocks are extremely volatile but they are in a position to generate strong returns and dramatically outperform US financial assets.

That begs the question.

Can gold stocks get and cheaper?

If not now then when is the right time to buy?

It’s certainly possible gold stocks could get even cheaper but probably only marginally so. They are already so cheap and so underowned that it’s impossible they become dramatically cheaper.

We are beating this point like a dead horse but the turning point for precious metals will be when the Federal Reserve ends its rate hikes. That is the time you want to be a strong buyer.

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About us

I’m Jordan Roy-Byrne, CMT, MFTA the editor and publisher of TheDailyGold.com and TheDailyGold Premium, our premium publication which emphasizes market timing and stock selection for precious metals investors. I’m also the author of the 2015 book, The Coming Renewal of Gold’s Secular Bull Market and I host a podcast dedicated to bringing you insights and views from the brightest minds in Gold and junior mining. [ read more ]